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Yes, You Can Buy Real Estate with No Money Down

by Rod Hendricks & Denise Boyd, Longview, TX   

If you haven't read my first story [Yes, Virginia, There Is a Santa Claus], then you don't know that I'm brand new at this stuff. You do now. My friends haven't figured out whether I'm a budding genius or a blooming idiot. I lean towards the former, naturally, but most think the latter is closer to home.

Regardless, here's what we did on our very first real estate investment. After our whirlwind first four weeks of investing in mobile homes, Denise and I could see that cash flow might become a problem before we got enough mobile homes sold with notes coming in to keep our bills paid.

There was a post on the Creative Real Estate Online Main Real Estate Forum inviting those interested to come to the Dallas real estate investors club meeting. Since we are only a couple hours east of Dallas, we decided to go.

I figured I'd make some good contacts at the very least and actually learn something useful. At the meeting, we met "Jackie In Dallas" and "Lisa of Rose Cottage," frequent visitors to this site. I explained to Jackie about our cash flow problem, and she suggested we find a house and "flip" it for some good quick cash.

We already knew about a house in our area that might be a possibility. I called the appraisal district and found that the owner was a bank in Minnesota. (Clue: Out-of-state bank owning property in Texas = potential motivated seller.)

I contacted them and found they had just listed the house with a local Realtor here and were asking $17,500 for it. The house, 3 bedroom/frame/1,300 sq. ft, based on comparable sales in the area, was worth around $38,000.

We called the Realtor and arranged to see the house. It was an absolute mess inside. The previous owners were forcibly evicted (color that "sheriff standing in doorway saying "Get out. Now!") and had left clothes, furniture, food, all kinds of stuff in the house. To say the house was not in the most attractive position to be marketed is an understatement.

The house was structurally sound but needed repainting inside and out, needed cleaned, of course, and the back steps were rotted and needed to be replaced. The electricity had been disconnected and to get it reconnected, the house had to meet city code, which probably was going to mean rewiring.

I estimated cost of repairs, if we hired it done, at around $7,000. The Realtor hinted that the bank was willing to negotiate. We went home, and I fired off a written offer to the Realtor for $9,762. (I love strange figures, especially low strange figures.)

After a couple weeks of waiting without any appearance or any real work being done by the Realtor, I decided to contact the bank directly and, within an hour, had a deal to buy the house for $14,500, with seller paying all closing costs except a title policy.

We faxed signed agreements to each other, and I was to go to the Realtor and actually sign an original. When the Realtor called to tell me he had the contract to purchase prepared, he told me, "All you have to do is come by, sign the agreement, and drop off a check for $500 earnest money."

I quickly informed him that there was no agreement for earnest money, and since we would be closing in two weeks, they didn't need it anyway. His only answer was, "Oh, okay." It was almost comical.

We immediately placed a sign in the yard, primarily because the house was on a very busy street. Jackie suggested I contact all the Realtors letting them know we had the house and were willing to flip it to an investor quickly at a bargain.

I spent the afternoon calling Realtors and created some interest, but no offers. The phone was ringing because of the sign in the yard, though, so things were happening.

At the same time, we had located another house in a nearby town and were trying to locate the owners who were facing foreclosure. The neighbor told us that a particular Realtor knew how to contact them.

I called the Realtor and while discussing House #2, I casually mentioned House #1 to her. She said she'd drive be to see it and then take one of her clients to see it. Two days later, she called with an offer of $23,000. We accepted their offer.

I took the earnest money check our buyer gave us to the title company and we waited. We had an agreement to provide "proof of funds" to the bank within five days, so I called the Realtor, told him we had a buyer for the house and asked whether our buyer's "proof of funds" would satisfy the bank and he agreed it would.

Our next hurdle was going to be at closing, where we would be expected to have a cashier's check for $14,500 to give to the bank. We did not have the money, nor did I want to take a loan out, even for a day, just to accomplish this.

I called the title company and asked them if our buyer deposited his funds into escrow at closing, could they simply cut a check from escrow to the bank to pay our purchase cost, cut a second check to pay for our closing costs, and give us the balance. I made it sound like that's the way we always did it. (Our first deal, remember, so it was the way we always did it.)

They agreed to do this, so that meant we would hit closing and wouldn't have a nickel in this deal and wouldn't have to have funds at that time. Everything closed, albeit behind schedule (it took about four weeks), precisely as we set it up.

Our buyer came in, deposited his funds in escrow, the checks were cut, papers signed, and when the smoke cleared, Denise and I were headed to the bank with a check for $7,892.46.

I purposely went to sign our original purchase agreement without one penny in my pocket. I went to closing without one red cent in my pocket. At no time during the entire deal did we have one penny of our money or anyone else's money invested. We just played middle man and took the "crumbs" that fell to the floor.

One of the biggest surprises out of the whole thing was how disappointed we both were that it was over. Nothing to look forward to all of a sudden. I guess to keep the two of us happy, we're going to have to keep at least one deal going continuously. Our thrill is in the game, but we're not stupid enough to think you can stay in the game losing money. If it's not a deal, we walk away.

What have we learned? The main thing I've learned is that it definitely can be done. I have never had a problem making ridiculous offers. I've never had a problem with work, so the effort involved is not a problem. I also totally understand that you make your profit when you buy, not when you sell. Yes, I know you get the money when you sell, but if you don't buy right, there will be no profit.

Jackie has been such a blessing to us. Her mentoring has helped immensely, and I am definitely taking another opportunity to thank her dearly for everything she's done. And yes, I'll honor our deal. I don't owe her. At some point, when I'm comfortable mentoring someone, I will pass my knowledge to them. That will be my "payment" to Jackie.

We've ordered Joe Kaiser's course and have just gotten it. I know already it's going to be a great investment for us. We'll take that knowledge and continue to compound what we've accomplished so far.

We started with Lonnie's course and have some mobile home notes already and are continuing to pursue that avenue. That is such a lucrative market, I don't think we'll ever get away from the mobile homes because within a few months, we will have all our monthly expenses being met by notes we've created.

But you can bet we're already hot in pursuit of our next creative real estate deal. Finding this website, meeting some of the people on here, learning what we've learned so far and what I surely know will come in the future, we have changed our lives. We aren't rich yet. The keyword there is "yet."

 
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